Saturday, June 08, 2019

Worry Dawns on Namibia Economic Recovery
2019-06-05
by Lazarus Amukeshe
The Namibian

THE slowdown in economic activity across all major sectors in South Africa is bad news for Namibia, finance minister Calle Schlettwein says.

The minister was reacting to the gross domestic product (GDP) figures from the neighbouring country released yesterday by Statistics South Africa (Stats SA), showing that the biggest economy in southern Africa has contracted by 3,2% for the first three months of 2019.

The announcement comes just 16 days before the local statistics agency releases the economic activity numbers for the first quarter of 2019, scheduled for 20 June 2019.

An economy is said to contract when there is a decline in the national output of goods and services, coupled with a drop in real personal income, industrial production, and retail sales.

A contraction hikes unemployment rates as companies tend to cut down on hiring to save money in the face of lower demand.

Schlettwein said the figures are worrying.

“It is worrying, for it significantly cuts across all important and major sectors, and that negative growth is most likely to blow over on our side since our economies are deeply integrated,” the minister said.

Namibia relies heavily on South Africa for many goods and services, and as the largest trading partner, imports from South Africa stood at N$49 billion in 2018, and exports at N$14 billion.

The minister said in the midst of the bad news, there is still hope of an economic recovery for Namibia.

“The bad, however, does not mean our recovery is completely stalled, but it rather tells us that we must re-align our fiscal situation to better fit the situation at hand,” he noted.

Schlettwein added that the hiking exchange rates are doing damage to the debt levels.

“The exchange rate is good for those who are exporting now, but our debt figure is deteriorating,” the minister said as he expressed concern.

He did not, however, mention specifics on fiscal realignments that would be made yet.

According to Stats SA, the slump is almost similar to what the country experienced in 2009 when the economy experienced significant strain from the global financial crisis, and the economy tumbled by 6,1%.

“The manufacturing industry was the biggest drag on growth in the first quarter of 2019, falling by 8,8%. This was driven mostly by declines in petroleum, transport and wood and paper,” Stats SA said.

According to Stats SA, mining also recorded negative growth, with a fall-off in diamonds, iron ore and coal production pulling the industry down by 10,8%. Wholesale, retail and motor sales dragged the trade industry down by 3,6%, while agricultural production slumped some 13,2% after registering a 7,9% rise in activity in the fourth quarter of 2018.

The statistics agency said government, finance and personal services were the only three sectors which posted positive growth figures, keeping their heads above water in the first quarter.

These three sectors are mainly dependent on what happens on the other economic segments, and are likely to follow on the decrease track soon.

Meanwhile, PSG Wealth Namibia head of research Eloise du Plessis said although the slump is high, it was slightly better than market expectations, and also agreed with the minister that the announcement was bad news.

“The figure came in below expectations, and was a surprise to financial market participants. The South African rand lost around 2% by 15h08. Government bonds as well as bank stocks suffered. This was very bad news all around,” she exclaimed.

Asked if the ordinary Namibian should be worried, she said, “Namibia is in a prolonged recession at this stage; we have been worried for a long time, and the Sacu revenues could drop due to this, which will put additional pressure on our budget”.

On future prospects, Du Plessis said economic recovery is expected to be more gradual than earlier anticipated due to a slowdown in global growth that will weigh on mineral and manufacturing exports, and fiscal consolidation that is impeding the services sector.

Cirrus Capital economist Robert McGregor said of greater concern for Namibia are the systemic issues that caused SA's GDP contraction, such as the investment environment, the impact on the exchange rate, and most importantly, the growing concern over the status of electricity giant Eskom.

Local economist Klaus Schade said the performance is certainly not supportive of Namibia's economic recovery, but agrees with the minister that there is hope.

“However, while we are facing regional and global headwinds, we can stimulate our economy by strengthening investor confidence through increased policy certainty, support to our own businesses through increased local procurement by the public and private sectors, and targeted interventions,” he added.

No comments: